FN136 DIRECTORS SHAREHOLDERS AND REWARDS ASSESSMENT.

Task One

Shareholder/Stakeholder Theory

b) In the Geoff Moore article, three theories have been analysed. These theories are shareholder theory, stakeholder theory and tinged shareholder theory. Shareholder theory is the idea that directors have a fiduciary duty to the shareholders alone and is concerned with maximising the wealth of the shareholders. The stakeholder theory argues that no one stakeholder benefits over another.

The main arguments used in the article to support the shareholder theory are that the directors fiduciary duties are to run the company in the interests of the shareholders and that this is because of one or more of the normative justifications. These include contractual relationships between the shareholders and the directors. Sternberg (1994) believes that as shareholders have invested their money in the business they have ‘property rights which ought to be protected’. Boatright (1994) agrees with this but goes further to say that their property rights are protected because of their rights as shareholders, such as their right to elect the Board of Directors. Moore then goes on to discuss the utilitarian/efficiency arguments as a support for the shareholder theory. He includes the following quote; “...corporations ought to be run for the benefit of shareholders because all other constituencies are better off as a result” (Boatright 1994). This will be ultimately beneficial because by reducing the costs of monitoring contracts the business becomes more efficient leading to greater wealth of the shareholder.

The main arguments used in the article to support the stakeholder theory are that directors owe multi-fiduciary duties to run the company in the interest of some or all of the stakeholders and that these are broader than those involved in the shareholder theory. Moore discusses that whilst the shareholder theory is restricted to legal and implied contracts, the